7 predictions for the African tech startup space in 2016

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So the dust has settled on 2015, a stellar year in the development of the African tech startup sector. The amount of funding available on the continent grew substantially, while there were major developments in hubs and incubators, e-commerce, fintech and government support for the sector.

So what will 2016 hold for the startup ecosystem on the continent? We look ahead to the next 12 months and speculate on how the scene will develop.

Investments will grow

2015 was a big year for funding for African startups, with some serious deals being closed across the continent. This shows no sign of slowing down in 2016, as investor confidence in Africa – and especially its tech sector – continues to grow. Even recently unstable Egypt has seen investors back its startups. Only yesterday Disrupt Africa reported on the latest fund launched for African startups, and more will follow as the year progresses. The key now is to make sure African startups are ready for that money, and able to negotiate their term sheets in their best interests.

People will put their money on fintech, e-commerce will change

Fintech startups were among the most popular amongst investors in 2015, while new fintech-focused accelerator programmes appear to spring up every day. Banks are finally coming to the party as well, which is probably just as well given the conceived wisdom that fintech startups could spell extinction for them if they do not. With banks now partnering with startups, and investor backing them, 2016 looks bright.

Less so for e-commerce, which is proving less attractive to investors as time goes by and flagship players like Jumia and Konga still struggle to turn a profit. There is plenty of sense in Naspers bailing out of South African e-commerce as it has done over the last couple of years. E-commerce’s time will come, but for now its major opportunity – and what proves the most attractive to investors – may be in more niche services that require smaller overheads.

Bitcoin to boom or bust

In the first half of 2015, much of the tech press – this author included – were espousing the virtues of bitcoin in remittances in Africa. “Booming bitcoin” didn’t last past August, with investments tailing off globally, the price fluctuating wildly, and lack of uptake forcing the likes of Ghana’s Beam to pivot. The year ended with BitPesa, perhaps the darling of the African bitcoin space, embroiled in a legal case with Kenyan operator Safaricom, and the Central Bank of Kenya (CBK) putting on record its distaste for digital currencies.

2016, therefore, needs to get off to a good start. There are still plenty of excellent and well-funded startups operating in the African bitcoin space, but it is a tough ask for them to get the public, as well as regulators, on board in a way that allows them to really take off.

Media interest in African tech to soar

Be prepared for more leeches like this author banging on your door looking for the latest scoop! For those of us that have been reporting on this space for a long time, it can be slightly irritating the way global media organisations are now suddenly alert to the news value of Africa’s economic boom – especially in the tech space. But it is here and it is real – and it is good. Suddenly the great, the good and the not so good (you all know who you are) of the world’s media are aware of what is happening in this sector. This will only lead to more investor interest in the space, and allow the continent to show off its success stories.

Solar to continue to lead the race

Fintech may be becoming increasingly popular, but solar leads the way when it comes to the sheer size of funding rounds for African startups. Huge rounds for M-KOPA Solar and Off Grid Electric ended the year on a high, and there is an increasing feeling Africa could prove the vanguard for global developments in alternative energy. The likes of McKinsey and the International Energy Agency (IEA) say solar will see huge growth over the next 20 years, and the opportunity is especially large in Africa given the vast amounts of the population without access to power. 2016 will continue this trend.

Tech hubs to consolidate and evolve

Last year ended on a sour note in the African tech hub space, with Zimbabwe’s Hypercube closing its doors after failing to secure sufficient funding. Hub sustainability remains a hot topic, with Africa’s innovation spaces urgently needing to find ways of at least breaking even while driving the continent’s tech revolution. Consolidation could be key to this, and we are likely to see more collaboration along the lines of that pioneered last year by Ethiopia’s xHub and iceaddis. In the accelerator space, expect to see more verticalisation as programmes increasingly focus on niche areas such as fintech and e-health.

Government will come to the party

Some may actually consider this a bad thing, but it will have its benefits if done correctly. Kenya led the way last year with its Enterprise Kenya programme – though we have yet to see any tangible benefits from it – and only this week Disrupt Africa reported Egypt is to launch a US$100 million fund for local tech startups. The Rwandan government also has a strong track record for supporting innovation, as do certain regional governments, such as the Western Cape Provincial Government in South Africa. More will follow their lead in 2016.

Is this a good thing? It depends how it is managed, with governments needing to detach themselves from how their money is spent and leave the actual allocation of funding to detached experts who can make hard decisions based on their experience of startups and their scalability and likelihood of succeeding. But in terms of African governments realising that their are a number of economic and societal problems that can be best tackled by offering support to the local tech startup ecosystem, it can only be positive.

Have a good one, and prosper.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent’s most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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